LG India to drive rival brands to follow its aggressive sales policy

Image credit: GettyLG Electronics has cut prices across products, is offering higher margin to retailers and is computing annual sales bonus to employees as part of their monthly salary. The strategy is one of the most aggressive undertaken by India's largest white goods maker in recent years to push sales and may drive rival brands to follow suit, said industry executives.

The changes have been brought in by the Korean company’s new India new managing director Kim Ki-Wan, four senior industry executives said, speaking on the condition of anonymity. He has been cherry picked by the headquarters to lead the operations in the country from August, with an aim to accelerate revenue growth to more than 20% to compensate for tepid growth in the past few years.

Ki-Wan denied any drop in LG’s average selling price since he took over. But the executives who spoke to ET confirmed the steps the new MD has taken and said he has been asked by the headquarters to consolidate LG’s leadership in home appliances, gain back the market share lost to Voltas in air-conditioners and improve the share in televisions where it is the third-largest after Sony and Samsung. This has led to more focus on mass products, they said. LG India’s sales grew 15% last year after three years of almost flat sales, aided by an improvement in consumer sentiment.

But this year, consumer sentiment has been weak, except for a brief pickup during summer and Diwali, impacting the industry. LG has cut prices by around 5-6% for refrigerators, washing machines and microwave ovens, they said. The reduction is around 10-15% for LED televisions and air-conditioners. The price cut has been done by offering 10-12% more margins to retailers, awarded both when LG sells the products to dealers (or sell-in as per industry parlance) and when the retailer finally sells them to the consumer (or sellout). Retailers usually pass on the benefit to the buyers.

The chief of a rival consumer electronics brand said for the dealer, the net landing price of LG products is much lower than what it used to be or even printed, allowing the retailer to pass on a portion of it as discount. “They have completely changed the market dynamics, forcing other brands to follow suit to lower prices. The focus seems to be back on mass segments,” he said. Citing an example, he said a 32-inch LG television, which used to sell at Rs 24,000, is now available at around Rs 21,000, similar to the price at which Videocon sells.

He said LG never focused on entry-level 22-inches television, but at present it is one of the cheapest brands in this segment. A senior executive with another white goods firm, citing market tracker GfK’s average price index for air-conditioners, said LG’s average price has dropped by five percentage points over the last year, indicating a price cut. Average price index is the ratio of value over volume in a category. In response to a question on the price cut and higher margin to trade, Ki-Wan said LG’s average selling price in past three months have not dropped as per internal and third-party tracking reports, so the information was not true.

He said his vision is to further strengthen LG’s leadership in the Indian market, which has the potential to become one of the largest. India at present is the fifth largest market for LG.

“We believe the company must create, develop (and) customise products based on consumer insight. Market forces must prevail and product realignment need to be done as per market needs,” Ki-Wan said. Next in line is a possible rejig in management with rumours suggesting Ki-Wan may rotate some roles which were thrashed out last week during his visit to headquarters in Seoul. Amid this, Saurabh Baishakhia, who was heading LG’s air-conditioner business, has also put in his papers. Ki-Wan did not respond directly to a question on management changes, but said: “Hiring new talent and training existing employees will be a continuous exercise for making LG India the best company in India.”

Ki-Wan has already toured most of the branch offices and communicated his aggressive plans and change in the bonus structure to staff. He said based on performance, LG constantly work on designing attractive remuneration for employees to reward talent throughout the year. Industry experts said LG’s price aggression may not deliver results long term unless the company increases its spending on marketing. Citing GfK data, a senior industry executive said LG, which used to one of the top spenders, is not among the top ten in television media spending for air-conditioner and not among the top five in print media. “All effort is on sales push and conversion at the shop-floor level,” he said.